Monday, January 21, 2008

Clinton's Economic "Prod"

Based on the most objective source for presidential predictions, http://www.intrade.com/, Hillary has a 67% probability to get the Democratic nomination, the Democrats have a 62% chance of winning the presidency over the Republicans, and Hillary has a 47% chance of winning the presidency outright. The Democrats are overwhelming favorites to maintain control of both the House and the Senate. Now of course all of this can change, but the smart money right now is betting overwhelmingly on Hillary to win the presidency and Democratic control over the Congress.

Meanwhile, the global markets are plunging as the United States continues in a recession which could lead to a worldwide depression. The SP 500 has lost about 19% of its value from its high's set last year including down close to 10% this month.

On Friday, our savior in the Republican party, George W. Bush, announced his plan to rescue the global economy and prevent losses which have already wiped out hundreds of billions of dollars in capital. What is the plan? Give everyone 800 bucks.

Meanwhile, Ben Bernanke, the genius Federal Reserve Chairman promises to cut the Federal Funds target rate at some point in the future although not immediately. Fed Fund futures prices forecast a Fed Funds rate in the 2.5% range by end of the year although the current Fed target is around 4%.

As markets are forward looking and given the high probability of Hillary winning the presidency, perhaps we should look forward to possible policy changes after the election. The link above gives us some clues.

“If you go back and look at our history, we were most successful when we had that balance between an effective, vigorous government and a dynamic, appropriately regulated market,” Mrs. Clinton said. “And we have systematically diminished the role and the responsibility of our government, and we have watched our market become imbalanced.”

She added: “I want to get back to the appropriate balance of power between government and the market.”

What is that balance?

Mrs. Clinton’s approach to the economy would have three main components. She would roll back the Bush tax cuts for households with incomes over $250,000 while creating more tax breaks below that threshold; impose closer scrutiny on financial markets, including the investments being made by foreign governments in the United States; and raise spending on job-creating projects like the development of alternative energy. “We’ve done it in previous generations,” she said, alluding to large-scale public projects like the interstate highway system and the space program. “But we’ve got to have a plan.”

In other words, as the world's economy suffers in the wake of the bust engineered by Federal Reserve monetary policy and stagnates due to burdensome and costly regulations (which is forcing more companies to actually go private rather than deal with the costs and liability of being public), as individuals pour 25 to 50% of their income down the Federal Government sewer, as they pay for goods and services with after tax dollars that reflect higher prices due to taxes on production, imports, wages, regulations, etc. not to mention sales taxes, as we pay higher energy prices due to global warming and environmentalist hysteria, as health care costs spiral upward due to government intervention in the marketplace, as the public education system continues to churn out illiterate morons, as the social security system robs wage earners of their savings, as we drive on government roads and bridges in desperate need of repair, as we spend billions of dollars to bring "democracy" to medievel cultures in the Middle East, what does she propose ? Well naturally, in the worst retread of every bad idea of the past 200 years and in defiance of all rational principles of economic science and in absolute ignorance of actual history, she proposes higher taxes, more regulation, and public works projects.

And what is the Republican response? Two words: John McCain. He currently has a 50% probability of getting the Republican nomination with his nearest challenger, Romney, at 26%. We can bet that if Hillary proposes 50% tax rates, a 100% expansion of federal regulations, and 500% increases in public spending the Republicans will counter with a bold, courageous plan calling for 49% tax rates, a 95% expansion of regulation, and a 450% increase in public spending (yes to her "job-creating projects like the development of alternative energy" but no to her "space program" idea.)

The financial markets are telling George W. Bush and Hillary what they think of their plans.